Difference between operating profit and net profit

The main objective of running any business is profit. After paying all bills and expenses, the profit is

at hand. Profits are of three types of net profit, operating profit and gross profit and these

bifurcations are made based on the source from which the business has generated profit.

In this article, we look at the significant difference between operating profit and net profit.

operating profit:

Operating profit is derived from gross profit. It is the income left after paying all the expenses and costs paid by the company in running the business.

We can say that this is the balance after accounting for all expenses and costs, including all fixed cost expenses such as rent,

Maintenance cost, insurance cost, etc. and variable cost expense courier, electricity bill, depreciation of property, etc.

Operating profit does not include profit generated on investment or interest generated on savings.

Operating profit helps a known profit arising from the company's operating deal with the company's core.

Operating Profit = Gross Profit - Operating Expense

Net Profit

Net profit is the balance of total income that may be inflows of outflows after accounting for all cash flows that are represented as positive or negative.

This is the number of earnings left after deducting all expenses incurred by the company, the interest paid by the company to the lender and taxes.

Net profit is the profit generated from all sources after deducting all expenses.

It is used as an indicator because it indicates the company's ability to generate sales.

It tells about the profitability of the company and it shows the actual profit generated by the company in a particular accounting period.

It is a fundamental difference between the total revenue and total cost incurred by the company in running the business.

    Total Profit = Total Revenue - Total expenditure for operations, interest, and tax.

       Net Profit = Operating Profit - Interest – Tax

Main difference between operating profit vs net profit

·         Operating profit is the company's remaining income after paying operating expenses,

  while net profit is the company's remaining income after paying all costs incurred by the company.

·         Operating profit helps to know how the company is managing its resources and its expense 

       management while net profit helps to know the actual profit made by the company in the accounting period.

·        Operating profits help eliminate unnecessarily operating expenses while net profits help in knowing the company's profits and performance in the accounting period.

·        In terms of operating profit, profit is the profit generated from operating profit, while net profit is the profit generated from all sources after deducting all expenses.

·         Operating profit and its calculation parameters focus on the company's core operating activity while net profit and its calculation parameters also focus on overall activity and other sources for the company's calculated profitability.

·      Operating profit refers to the profitability of a company's operations while net profit refers to the company's ability to generate profits for its owners, stake owners, and shareholders.

Basis of Operating profit vs. net profit

Meaning

Operating profit - Operating profit is the company's remaining income after paying operating expenses.

Net profit - The net profit is the company's remaining income after paying all costs incurred by the company.

Benefit

Operating profit - It helps to remove unnecessary operating expenses.

Net profit - To help the company's profit and performance in the accounting period.

Uses

Operating profit - To manage all the expenses of the company and to know how the company can manage its resources.

Net profit - To find out the actual profit made by the company in the accounting period.